The S&P500 is up 0.5% to a fresh record high, amid developments in US fiscal stimulus talks. Bond yields are slightly higher, and the defensive US dollar has fallen to a three-year low. Commodities, Brent crude oil futures rose 0.4% to $51.30, copper rose 1.2%, iron ore rose 1.6% to $158.85, and gold rose 1.0%.
AUD/USD: 0.7591 – 0.7639 (2 ½ year high)
EUR/USD: 1.2225 – 1.2270 (highest level since April 2018)
GBP/USD: 1.3553 – 1.3625
USD/JPY: 102.88 – 103.34 (nine-month low)
USD/CAD: 1.2688 – 1.2732
NZD/USD: 0.7132 – 0.7171 (3-year high)
AUD/JPY: 78.36 – 78.82
AUD/NZD: 1.0640 – 1.0668
Risk-sensitive AUD is benefitting from the market’s broadly positive risk appetite; US equities are up, with the S&P 500 and Nasdaq Composite indices hitting all-time highs on Thursday, crude oil markets are up, precious metals are up and for the most part industrial metals including iron ore (a key Australian export) are up.
As to why markets are in such a good mood; although the Fed didn’t opt to increase the monthly pace of asset purchases or tweak the composition of those asset purchases in last night’s meeting, Fed Chair Jerome Powell was keen to reassure market participants that the Fed’s ultra-accommodative monetary policy stance is not going anywhere any time soon. Meanwhile, the latest news on the Brexit front suggests the EU and UK are closing in a deal, potentially by the weekend that would avert what market participants see as a disastrous no-deal outcome at the end of the transition period on the 31st of December and US Congressional leaders seem on the brink of clinching a deal on further Covid-19 fiscal aid.
Domestic Aussie factors also helping
AUD also received a tailwind from domestic factors during Thursday’s Asia Pacific session. Firstly, Australian November jobs numbers were much better than expected; the economy added 90K jobs (versus expectations it would add 50K) and 84.2K of these were in full-time employment (which is a better sign of economic health given full-time jobs tend to be better paid and more consistent in the long-term). Meanwhile, the unemployment rate dropped to 6.8% versus expectations it would remain unchanged at 7.0%. Despite this drop in the unemployment rate, the participation rate rose from 65.8% to 66.1% (versus expectations for it to rise to 66.0%).
Elsewhere, the Australian government delivered its Mid-Year Economic and Fiscal Update, which projected real GDP to grow at a rate of 4.5% in 2021, a little lower than the previous forecast for growth of 4.75%. However, the bad news from the government pretty much ends there; the government said it still expects resource exports to increase 5% in 2021 and 2022 despite the country’s trade war with China. Moreover, the government’s budget deficit forecast for 2021 was revised lower to A$197.7B from its previous forecast of A$ 213.7B.
AUD/USD trading to a high of 0.7639 and breaching some key technical levels, we now expect offering interest to materialise ahead of 0.7665 and again at 0.7700 while demand has likely been dragged higher and should slow any dip back toward 0.7570
Event Risk Data Today
New Zealand: Market expectations that there will be further increases in ANZ business confidence through December. There has been continued positive news regarding vaccine development in recent weeks. There has also been continued strength in the housing market and household spending. Similar themes are likely to be at play in the December ANZ consumer confidence measure. Meanwhile, the November trade balance is set to increase to $250m on stronger exports after October’s drop.
Germany: The December IFO business climate index is expected to ease to 90.0 as lockdowns escalate.
UK: Competing forces will govern the outcome of the December consumer sentiment survey - a rising case count offset by a successful start to the vaccine rollout (market f/c: -31). November retail sales will be pressured by restrictions (market f/c: -4.2%).